Final Assignment 2022-Fall

Management, Organization, and Change (IMS518)

Case Study

Andrea Illy is CEO of the global premium coffee company that bears his family’s name.
As one might expect, he is passionate about coffee – its science, its health benefits, its
taste, its beauty. Illy also has a dream that someday soon the coffee market might be
transformed into something approaching the market for wine. Where connoisseurs
discuss the fine points of various origin coffees and blends, where customers are willing
to pay a premium for the finest examples of the coffee-making art, and where the growers,
roasters and baristas will be compensated fairly for the expertise they contribute to every
cup.

Unfortunately, the current coffee market differs from such an ideal. Coffee growers in
most parts of the globe work at a barely subsistence level. One bad harvest (made all the
more likely by the ravages of climate change) or a sudden decline in the commodity price
of coffee can drop them below subsistence to hunger. Even in good times, growers have
little incentive to improve their operation – they have minor contact with the roasters or
customers and no knowledge of how their crops get translated into the cup. This
disadvantages not only the grower but also the consumer – coffee sourced from good
quality beans is hard to find.

llly believes that the solution to the sad state of affairs is to initiate a “virtuous circle” that
draws the grower, the roaster, the barista, and customer together. Growers with better
knowledge of the market will work to improve their crops or experiment with new varieties.
Roasters and preparers will educate their customers as to the qualities of various beans,
roasts, and preparations. Customers, in turn, will be willing to pay more for the best beans
and that premium will be sent back up the chain to pay for even more quality and variety.
And so on.

Certainly there have been some positive signs. Indeed, many observers argued that a
“third-wave” of transformation in the coffee market was already starting. (The first wave
is said to have occurred when Maxwell House and Folgers made coffee a mass
commodity, the second wave when Starbucks initiated a move to quality and higher
prices.) Specialty coffee roasters had worked to build cafes and brands around origin-
based beans sold directly to the roasters without reference to the commodity prices of
coffee. With these third-wave roasters, every coffee came with a story of its origins and
growers could count on occasionally eye-popping premiums for their beans.

As yet, specialty coffee represented a small sliver of the overall market and there were
other signs that it might not ever grow beyond a small circle. New trends like coffee-based
drinks and single-portion coffee in pods (e.g. K-cups, Nespresso) actually shifted more of
the value-added towards roasters without a premium for growers. A consolidation was
taking place among mass roasters that was even sweeping-up third-wave roasters in its
wake. Observers argued that could lead to greater uniformity with even less emphasis on
origin-based, direct-traded coffee.

Illy’s hope is that someone would come up with an innovation that would solidify the
beginnings of the third wave and help reshape the market. Such a change would not
necessarily have to involve illycaffè; Andrea Illy believes as the world’s premium brand,
an increased emphasis on quality in the market would only help his company. The most
important thing was to make the coffee supply chain more equitable and coffee better-
tasting.

Illy’s Approach:

Illy might be dismissed as a dreamer, if his own company illycaffè, hadn’t made the
virtuous circle work for their offerings. Illycaffè works closely with its growers, educating
them as to the best cultivation techniques, and gives them 30% more than the going rate
for their coffee. After harvest, illycaffè blends and roasts the beans, using proprietary
technology that the company developed. Then illycaffè ships (in its own special cans) this
premium coffee to cafes, restaurants, and customers, who can use illycaffè machines to
prepare the roasted beans to its best advantage as coffee, espresso or espresso-based
drinks. If that weren’t enough, illycaffè sponsors its own university, Università Del Caffè,
to train growers, café professionals, and connoisseurs as to the fine points of coffee
cultivation, preparation, and tasting.

Illycaffè has built a global company through these techniques and its willingness to build
relationships and innovate at each step of the coffee supply chain. Nonetheless, as
Andrea Illy would be the first to acknowledge, his company is a luxury niche player in the
much larger global market. As a coffee missionary, he would like to see a larger part of
the market transformed.

Assignment
Evaluate Andrea Illy’s approach and propose innovation(s) in the coffee supply chain that
will help move Andrea Illy’s dream closer to reality.
Your proposal should outline which firms and organizations are likely to participate. You
should address which customer groups your scheme will target and why your scheme
might alter their existing patterns of consumption. Also outline the funding and
governance of your particular scheme, referencing how firms and other actors would
individually or cooperatively bring about the particular innovation you are proposing (e.g.
if you believe that the coffee market would be made better through sponsoring “coffee
cruises” you would specify who would own and pay for the boat, how the operational costs
would be covered, who would choose the captain, etc.)

Keywords: Improving the livelihoods of growers, a reward system for higher quality coffee,
increasing coffee connoisseurship, willingness to pay more among customers, impacting
more farms and/or roasters.

Note: Your recommendations need not involve the resources of illycaffè directly. Andrea
Illy has noted that anything that increases coffee quality and appreciation will help his
company.

Assignments will be graded on their innovativeness, feasibility, and impact.

Good luck!